As your business grows, so does your exposure to payment fraud. Whether you're operating across multiple locations, managing remote teams, or processing hundreds of transactions daily, the financial and reputational risk of fraud increases.

Payment fraud isn't just a retail problem as it affects service firms, manufacturers, contractors, wholesalers, and professional practices. The greater your volume of payments and customer interactions, the more sophisticated your anti-fraud measures need to be. Even one incident can disrupt cash flow, damage customer trust, or create legal and insurance headaches.

 

How payment fraud occurs

Fraud doesn’t always come with flashing warning signs. In many cases, it’s hidden behind seemingly normal transactions. Common fraud scenarios include:

• Refund scams where a customer picks up merchandise, walks to the register claiming they want a refund but the product was never purchased. Without receipts or sales records linked to returns, this becomes hard to challenge.
• A customer pays by credit card, receives the product, and then disputes the charge. These disputes (chargebacks) cost you both money and time, even if you win the case.
• A new customer starts with a small, paid order, builds trust, and then places a large order without upfront payment. You fulfill it, only to find out the business was fake or the payment method invalid.
• Despite declining usage, checks are still a major fraud risk. Checks are easy to alter, forge, or intercept during mailing. Many fraudsters still use fake checks to place orders or pay invoices. If you're using checks to pay vendors, you're also exposed to risk if the check is intercepted or duplicated.
• Stolen credit cards.

Checks also remain a major vulnerability. Despite digital alternatives, checks are still used in B2B payments, especially for vendor and utility payments. Risks include check washing where fraudsters steal mailed checks and alter payment details, and counterfeit checks.

Move to secure electronic payments (online banking, ACH etc), EFT, virtual cards, or B2B platforms like Bill.com) to encourage customers to use digital options and set internal policies to stop issuing checks unless necessary.

 

How to prevent payment fraud

Gaining a good understanding of these common fraud methods and training your team to recognize them will help you protect your business and reduce the risk of loss.

As in most cases, prevention’s always better than a cure. Chasing up people who’ve swindled you is time-consuming, stressful and not always successful. It’s far better to have measures in place to prevent payment fraud happening in the first place.

Some of the best ways to avoid payment fraud are:

• Training your front-line staff. It’s important to give them the tools and training to spot fraud at the source by regularly reviewing examples of fraud, and your business policy on what to do.
• Daily finance reviews to keep tabs on your accounts to monitor what goes in and out daily and reconcile to your records to spot inconsistencies early, before they become a problem.
• Procedures for release/transfer of funds. Identify the main types of payment fraud that could impact your business. Then, clearly outline how to prevent it happening. Make sure your employees understand and include complying with these rules as part of their employment.
• Staying informed and talking to other business owners, online research and in general keeping up to date for news of any recent frauds that might be operating.
• Background checks of customers if you’re even slightly suspicious, as there’s nothing wrong with checking up on a customer. Search for them online or in social media, call the company, or conduct a credit check.

Offering debit or credit card options, taking payments electronically using mobile payment methods, not accepting checks and if you are in retail, a surveillance system are all good ways to prevent fraud.

 

Set policies and train staff across all touchpoints

Even the best fraud prevention tools won’t help if your team isn’t aligned. Especially in face to face interactions, train staff to verify IDs, spot counterfeit bills, and handle suspicious transactions. Use real-life examples to make the training stick.

Require two-person approvals for any bank account or vendor changes as one person shouldn’t control billing, collections, and reconciliation.

Assign someone (e.g., controller, finance manager) to own fraud oversight and update you monthly on risks, trends, and suspicious activity reviews such as large or unusual refunds or voided sales.

 

Next steps

• Eliminate reliance on paper-based payment systems, particularly checks, which remain one of the easiest paths for fraud.
• Adopt cloud-based accounting and payment systems with built-in fraud detection and multi-user access controls.
• Implement a payment policy that includes dual-authorization rules, documented vendor setup protocols, and internal audits.
• Train your frontline and finance teams to spot red flags and take action immediately.
• Partner with IT or a cybersecurity consultant to secure your network, payment systems, and data integrity.

A proactive approach will strengthen your defenses against payment fraud and help keep your business secure.